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It has been a long time coming, but Seattle home prices may decline by anywhere from 5 to 10% in 2023.
Does that make homes more affordable?
Prices are still high and higher interest rates means the median monthly payment in King County is now 40 $300, up 1200 bucks in just a year.
Our annual discussion about Western Washington's housing market is next.
On Northwest down.
I do this program every year because let's face it, a home was very possibly the largest purchase most people will ever make, and traditionally one of the keys to building wealth.
But entry point matters.
And while some of the most recent buyers are seeing the value of their homes dip below the amount of their mortgages, as was the case back during the Great Recession.
With only about two months of supply, prices aren't down by much, especially in Seattle, which is made even more difficult since rents continue to rise.
It all adds up to a bit of a standoff between buyers and sellers, where people who own homes don't want to leave their low rate mortgages behind and where people who want to buy them are being faced with higher mortgage payments.
Even on homes whose values might be dipping a bit, this is the future of Washington real estate.
This is, again, one of those dwellings that is multiple dwellings on what used to be maybe just one lot townhomes, cottage homes, condos and duplexes in neighborhoods where only single family homes were allowed.
But who can afford this really, right?
It's a good question.
Until then, buyers are at the mercy of market forces.
Fewer homes mean higher prices, and now soaring interest rates have become a deal breaker.
Real estate agent Mike Ferrari.
It's still a seller's market because of the inventory.
So there you have the big rates that are taking some people just out of it.
And then you have the shortage of homes.
And then somewhere in the middle is where you have today's spike by December of last year.
Winter real estate estimates the number of homes sold in King County dropped by 43%.
In Snohomish County, 39%.
And in Pierce County, the fall reached 50%.
Everything did really well.
Spring of 2022.
But by June, with inflation running hot, the interest rate on a 30 year fixed mortgage exploded before topping out at 7.3% in October.
Real estate agents sold the real.
So the biggest kind of output for homebuyers from all the macroeconomic turmoil.
What's happening in the world right now is that interest rates are dramatically higher than they were.
And, you know, a lot of folks who might have been relying on money from the stock market don't have as much cash.
High interest rates are forcing wealthy buyers to avoid loans altogether, instead paying cash.
Trouble is that prices out just about all other buyers.
In fact, from Seattle to Bellevue and Olympia, as much as 20 to 60% of the new homeowners are paying cash.
Today, a 30 year fixed comes in at just under 6%, double what it was in 2021.
But the fundamental pieces that Washington is ranked 50th out of 50 for the number of housing units we have versus the number that we need.
The struggle is real estate report a couple of weeks ago found that we need to build 1.1 million new homes in the next ten years, and that about 70% of those have to be affordable to people making below median income.
One estimate suggests 20% have been priced out of the homebuying market.
FHA loans are back in vogue.
What what is that?
What does that mean?
What does that doing?
The Federal Housing Administration is offering loans with as little as three and a half percent down.
There are a lot of strings attached, but Agent Mike Ferrari says it's an option.
It's people that are just trying to get to the table and buy a home for a smaller down payment.
You have to jump through more hoops because that's an option.
That's an option.
I'm working with a couple right now that's going through that same thing.
Home prices are dropping, but not by much.
As one agent put it to date, the interest rate marry the home and jump at the chance to refinance.
John Liberty Northwest now.
Joining us now are Mark Meath, the president of the Puget Sound Mortgage Lenders Association, Sharon O'Mahony, the president of Seattle, King County Realtors.
And Mike Stewart, the president of the Tacoma Pierce County Association of Realtors.
Welcome, all of you To Northwest now.
Great to have our annual conversation about the real estate market.
It's really been interesting over the course of the past 12 years since I've been doing this program.
I mean, we had downs, we've had big ups, and now I really don't know how to characterize this one, Mark.
There's a real question mark out there.
And I put you at the end in this show because I.
This year we're starting with interest rates.
And, man, have we seen a change.
So my generic question to each of you as we get started here, what are you seeing right now with rates going up?
What's what's your experience?
What can you tell buyers and sellers about about what's going on out there that the belief is towards the end of this year, probably the beginning of 2024?
There is rate relief coming that the Fed actions, their intent was probably a little bit late.
And then of course, they have probably gone a little too hard, too strong.
But with wages, hopefully slowing down a little bit, that'll help curb inflation.
And then the Fed can then start easing the short term rates and then mortgage rates will will follow suit.
So we should probably in the, you know, the end of third quarter or fourth quarter begin to get the positive news and the beginning of fourth quarter, our first quarter of 24.
So I'm going to do a follow up with you now.
And the realtors are a safe distance from you.
They can't get you with their forks.
So should we wait for lower rates?
No, No, because right now there's and I think the realtor friends of ours right here will attest to, you know, there's great opportunities out there.
There's great buying opportunities.
You just you just have to be looking for them and understand, you know, the value of the home in the community.
But I'll let them answer more of that.
And I always tease realtors because I know the answer to the question.
The answer is always, well, now's a great time to buy.
And so it's one of the favorite things I like to do to kind of prod realtors a little bit.
But with that said, you know, listing and permits down.
What are you seeing in King County?
What's your experience?
Give us the lay and of the lay of the land for buyers and sellers in King.
Well, right now, title orders are way down about 25% down from last year.
Partly that's because most if you refi in the last ten years, you know, you've got a 2 to 3% interest rate, so you're not really compelled to sell.
So the people who are selling are people who are relocating.
You know, they have a death in the family or something like that, or people who are now we've got some layoffs.
So that should be interesting to see what happens because the inventory is very low right now.
But like Mark said, it's there is an opportunity because what I am seeing and other shifted is people who couldn't afford to say, live in a certain neighborhood now see an opportunity where the prices have come down just a smidge, where they can make a move.
So they're doing key lock loans to get into that new house and then selling with very low inventory.
So under 700,000 in Seattle, King County, we're seeing multiple offers again, because there just isn't the inventory.
And that over 1.3, it's a little bit longer time.
So, Sterling, tough one for you.
If I forced you to.
Would you characterize it then as a buyer or a seller's market?
It's still technically a seller's market.
We still have the inventory is less than about a month.
So it's really still a seller's market.
But you are seeing a lot of concessions from sellers.
So a lot of closing costs are being paid, a lot of repairs being made.
So, you know, in the last ten years, you didn't get that from a seller.
Right now, buyers do.
If they can get into a contract with a seller, they are getting a lot of things compensated.
Like you might get a new roof, you might get a new electrical panel.
Get closing costs paid for you.
So there are some benefits to that.
It's just it's still sort of a tight market.
And King County.
Mike, same basic question to you, a county below.
You know, it's interesting.
The thing about Pierce County, this could be the fact that I've lived here a long time, that maybe informing this and tell me if this is still true.
Pierce always lagged coming up, but was fast going down unlike and like King is.
That's still true and and maybe as you answer that do give me a feel for what you're seeing out there like Sharon did for King.
How are you What are you seeing in Pierce?
Yeah, we we do still follow our big brother up in King County.
We we Legg coming up and we we follow them quick going down so that that is still true what we saw, you know, beginning of last year we had such a tight market and low interest rates that when the interest rates bumped up, if those the buyers and then the sellers didn't know what to do.
So they actually we had more inventory come on and our inventory built up as the year went on.
But what we're experiencing now is a buyers are getting used to the interest rates and this is the new normal.
The six, six and a half, 7% is the new normal, which increases payments 1500 to 2000.
I mean, it can really impede your ability, your carrying costs, without a doubt.
So we are seeing sales are down year over year due to interest rates.
However, once again, it's the new norm and buyers are coming back into the market.
And what they're figuring is that they'll refinance when rates go down.
Yeah, and Sharon brought this up briefly.
And and so my question to you, even if you wanted to sell and you were highly motivated and like I said, I think Sharon did a good job touching on this if you got to move because of Dora, sort of, okay, fine.
But you're you're going to really think twice about getting away from your 275 or your 325 3.25% mortgage.
Even if you're ready, willing and able to, you're going to really think twice about about that.
So that's got to be playing a major a major piece in this, too, I would think.
I without a doubt.
Which is why, you know, every single buyer in terms of the lending side, I mean, it's trying to get a piece of that market.
It's you know, it's the get a piece of your own area in market and then try and cultivate that buyer.
So a lot of it has to do with probably helping your first time homebuyers.
Finding alternative means for why they would want to buy in this market.
And for them, if they're a first time home buyer, they really don't know any different.
It's just, do I qualify?
What does it take for me to get in to that first home?
Sharon Some of the research is saying in King County they could see prices drop five or 10%.
But again, on that same theme, that's all well and good entry point matters.
But if you're carrying costs are going up and your payments being raised by 1500 or $2,000 a month on average, that's going to impede, impede the buying process.
Do you do you feel that that is a little overcooked in terms of actually seeing values go down in King County?
Will we see that, do you think, or do you think it's going to be more of a flattening?
And I realize I'm asking you to predict the future, but sure, it's part of the fun.
That's a good question.
I I feel like we're seeing a little flattening on the prices.
And I think sellers I mean, this is also the job of the agent is to really be realistic with the seller about what they can expect because I still think people are looking on different sites and have a value in mind.
And those those numbers are from last year.
And so the current market would say that you need to be pretty realistic in your price needs to be down a little bit for you to get an offer.
And overpricing Homes is always one of the great banes of realtors as well.
You watching that sign linger out there and then having to put price reduced on it.
I mean, there's nothing worse.
That is that is a death knell right now for sellers because if you're not selling when the first three weeks, you're probably not priced right in this market.
And you know, across the country, of course that's different scenario.
But here, I mean, things usually are moving within a week if they're priced correctly and they're, you know, not in a terrible location, if it's pretty dialed in.
Mark, question for you.
And I want everybody to chime in on this one.
Because there's a lot going on in the legislature, a lot that we're talking about with density and zoning, lots splitting, getting away for statewide, I guess, from single family home zoning, and that which opens up a whole can of worms about the GMA and whether it worked or not.
And do you have any thoughts about that piece of this?
How is how is all that impacting the real estate market?
And does it it's a summary form bode well for the future.
What are your thoughts on that?
So there is definitely resistance to having more density, but it is needed.
Like in the city of Tacoma, 70% of the of the land is zoned for single family residence and there is we're running out of land.
And so it has to become more dense.
So there's home in Tacoma that just passed, which increased density.
And the realtor association backed that up and we helped promote it because in order to keep housing affordable, we've got to do something and we need more density in order for that to happen.
Sharon Lot splitting is a big thing in Seattle now.
Do you see much of that or people buying with that in mind or not selling and deciding to put of a second dwelling on the property?
What are what are the dynamics of that that you're seeing?
Open the hood, lift the lid there a little bit for us.
Well, that's a big push for us just as realtors in general.
But what I'm seeing is that people are buying a lot of builders are buying corner lots and they're building and condo izing the second unit.
So they're building like an 80 you what would be considered a additional dwelling unit and they're making it into a condo.
So if it's a corner lot and you can have access from both angles there, there's just not a lot of the it's partly the permitting process right now is pretty slow.
So I think that once that eases up, there's a lot of House bills at the legislature this year.
And so they're really a big push for that to go through.
And there's a lot of resistance, like you said, too, that there's a lot of resistance for people don't want that in their backyard, but we really need that.
And I think that if we can get some of these House bills passed, then we will see some easing up of the the permitting process, too, and get some action on that.
And I think people need it.
We need it.
Mike, as president of the Mortgage Lenders Association, I'm sure you hear this all the time.
I'm always hearing just in conversation from builders and from people.
And it's the dang regulatory structure.
It's all the the GMA is is part of that.
But so it's too darn hard to build homes to open up a piece of ground and get it done.
What what do you hear?
Do you think that's real?
And give us some perspective on the financing side?
I would agree with that.
Just in terms of watching how long it takes for permits to get through the process.
So part of my job and my, you know, regular job is helping for construction financing.
And so we do see lags for just getting something through, as well as pushback from the municipalities.
Even though they're asking for density in certain areas, it still can be a challenge.
So the construction side of stuff is getting held up on, you know, the municipalities.
And then in terms of the financing rules, they're still pretty strict because of past history that we got through and wanting to make sure that it's a you know, it's a safe land, so to speak.
Is anybody seeing problems with sellers who have last year's prices in mind?
Buyers who are coming in and they reach a deal but it's not appraising?
Is that is that happening at all that that appraisals aren't making the number that there's a big cash call at the time of sale or are appraisals still coming in at about where buyers and sellers are meeting?
I hope I'm not being too vague there.
Who do you like to answer that?
Anybody who has experience.
So I talked to an appraiser a couple of days ago and his comment on that is that he's having to get creative because they can go back six months for their appraisal.
And if you go back six months, the market was different than it is today.
So he can pull comps from back then forward, Right?
I didn't know that.
So what he's trying to do is, is stay in the same market and what I mean by that is that today's market, it's more of a of a rising market.
We're getting more competition because there's less inventory come on.
About half in February, about half the inventory came on that it did last year.
And so we're getting that tight market.
And so he's trying to use recent sales or go back far enough to where he's pulling something that's a similar market, not the end of the year where things were really falling off.
Sharon, your your your deals appraising any any hang ups on that or.
I haven't had any hang ups.
I do get a lot of calls from appraisers because they're looking for insight into what the concessions might have been, because we don't have to, as agents put that in our notes.
So appraisers do have access to the MLS, but unless you put in what the concessions were, they may not know.
So, for example, I sold a property and we gave an $85,000 concession to the buyer to make the deal go together.
But the list price was still the same as what the lowest price was.
So the president know that, But he needed to know that because that was a lot of information that he could use then to know that that should be deducted from the deal.
So it'll make the make the appra Mike, you as well.
You're you're at the you're waiting for that appraisal to come to you in your industry.
Are you seeing any hang ups, hold ups with that or on resale.
Not as much on custom construction.
There's been a couple instances where we were probably putting maybe too nice of items in on the on the home.
And so the value wasn't there.
In one case, a detached shop.
You just don't get the numbers, the swimming pool, detached shop dilemma of somebody wanting that for their build.
So we've seen a couple of instances on custom construction where we've come up a little bit light, but in the case of resale, we're pretty much coming in right at value.
Mark, how does that get resolved?
What happens at closing?
Well, we have great agents that help us with additional comps and sometimes we have to lean on our agents and say, look, we've got an appraisal issue.
I'm I'm not an appraiser.
I know how to read an appraisal report.
I'm not a broker.
I don't see everything on the front line of everything that's going on.
So I have to rely upon really strong real estate brokers that know when they listed the home, you know, how and why they justified their value and this this may come, you know, sometimes with a little bit of cash from the lending side.
But I'm constantly asking my listing brokers, hey, if you know of comps or how you justified the value, if you want to have that available or if you want to make sure that you are there to give that information to the appraiser, fantastic, because that's going to help support our cause, provide that documentation and correct?
Yeah, but it's not always easy because appraisers don't always make those contacts.
So it's kind of one of those things where I can't specifically talk to directly to an appraiser.
I can put notes that are given to the appraisal management company that then may pass on those notes.
But I'm at the mercy.
Yeah, maybe I'm at the mercy of of.
Does that appraiser reach out and make contact with the listing broker to make sure if there are insights to the transaction or other comps that are out there that they're fully aware?
Yeah, because there's times where even though I'm in a maybe a Pierce County property type area, we may get an appraiser from Federal Way or from Auburn or from Renton because they're needing business too.
So they're willing to make that's a big one as an out of area.
APPRAISER Yeah, exactly.
And it's it's still relevant that that thought process, even though the data may be there.
I personally believe that they they reaching out to our licensed professionals who have a rationale for how and why the listing or the price came to where it came to is important data for the transaction.
Sharon, I'm not going to ask you to get too controversial, but I do want to ask you this question.
I'm a little surprised that values have hung hung in there as well as they have in Seattle when I consider the governance issues, the crime issues.
Some of the things we're seeing on the streets.
Are you surprised by that at all?
Or or do people who live down here in Pierce County May overreacting to what's going on in Seattle set me straight?
Well, I think that I think people would be surprised at how many people are still moving to our area and find our area to be the most desirable area.
And I've actually this is the first this last year was the first year that I've had people contact me and ask me about firemen.
And really talking about climate change.
And a lot of those people are coming out of California.
But I think that we shouldn't downplay how much people from the West, you know, other states are looking north and trying to get out of their areas for different reasons.
California is out of the drought now, but that was a big issue with the water issue right there out of the drought for this year.
But I think that I'm not surprised because I think that Seattle still a very desirable area for people who are moving here from other places.
I think you have more people in Seattle who are disgruntled, who've maybe been here and seen the changes over the last 25 years and seen things shift a bit.
Those are the people who are sort of moving out of area.
I would say more than the influx coming in.
Yeah, Yeah, I think that's fair.
Mike, same question for you that a lot of concerns down here about crime.
Property crimes, particularly, you know, the sheriff's department is, you know, made no bones about the fact that they just can't get a lot of it done through no fault of their own, but just manpower and everything else.
Is is anybody expressing concern about coming to Earth?
How do you feel about that in terms of the value that Pierce County provides?
Is it hanging in there?
Do you see a decline there?
What's your take on that?
Yeah, it's hanging in there and a lot of it has to do with the jobs that come from the Seattle area.
Is it people being able to work from home are coming to areas in Pierce County.
So that's been a big change.
And they have the money and that's what's held up The prices is there's still that demand there.
And a lot of them are worrying about the interest rates because they're able to sell their home up in King County for significantly more, come down and pay cash or pay mostly cash and have to finance very little.
So they're not thinking about having a bank up 167 every day because now they can do remote work.
So that may be the thing at the end of the day, that does keep that boom and bust feel out of Pierce County a little bit.
Maybe that's a big maybe that's kind of a secular change we're seeing.
Without a doubt.
Yeah, we've seen a lot of the Microsoft people come down to to our area and other high tech jobs.
Last minute 45 here.
Just want to hit each one of you.
Quickly, I'll start with you, Mike, and move up to Mark.
What should what should buyers or sellers be thinking right now?
I think if they find the home that they like and can't afford it, now is the time because you don't have the competition that you had before.
I remember when there were 60 showings in a weekend and you'd have 30 to 40 offers on a place.
We're not experiencing that now.
We are seeing multiple offers, but we're not seeing those amount of multiple offers driving prices up 60, 8000 thousand dollars over asking price.
Sharon I was going to say, yeah, same thing.
Can't time the market perfectly.
It has to be the right time for you personally.
And I think if you find the right house, you're going to make a move on it because without making more land.
And I think for us to catch up with the building problem that we have and we were down so many units that I don't think people recognize really or realize how short we are on housing.
It's a real crisis.
Mark, last word to you.
What should people be doing to prepare themselves to get financed?
If they want to do something, always be prepared with your documentation.
It surprises me every single time about just somebody having to chase down W-2s, pay stubs, bank statements, and understand there's there's a number of items.
We forewarned them.
But getting that information together now and then getting it turned in because we don't know what we don't know about each individual's profile.
And so there could be something that's out there within that person's background or situation or employment situation that we have to work through.
So we need just a little bit of time to make sure we get that completed.
And once we have that opportunity, then the transaction tends to go very smooth because we went from no documentation to lots of documentation now.
Good conversation, everybody.
Thanks so much for coming in.
Northwest now, I always kid with realtors that no matter what the market conditions are, they will always reliably say now is a good time to buy.
The bottom line, markets ebb and flow, but the real difference maker is time.
If you buy a home as a shelter and a place to stay for a decade or more, you can worry less about the fluctuations of the market because time is on your side.
As for interest rates, yes, that's another problem.
But remember too, that in a few years the people buying today will be out refinancing.
When rates go back down, I hope this program got you thinking and talking to watch this program again or to share it with others.
Northwest now could be found on the web at Kibbutz Borg and be sure to follow us on Facebook and Twitter at Northwest Now.
A Streamable podcast of this program is available under the Northwest now tab at kbtc.org and on Apple Podcasts by searching Northwest.
Now that's going to do it for this edition of Northwest Now and Till Next time.
I'm Tom Layson.
Thanks for watching.